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Bigger Funds, Larger Spotlight, Bigger Mistakes

spotlight, bigger mistakes

I was doomscrolling through Twitter when I stumbled on Samir Kaji‘s recent tweet:

I’ve written before that the difference between an emerged fund manager and an emerging manager is one’s raised a Fund III and the other hasn’t.

In Fund I, you’re selling a promise – a dream – to your LPs. That promise is often for angels, founders, and other GPs who write smaller checks. You’re split testing among various investments, trying to see what works and what doesn’t. More likely than not, you’re taking low to no management fees, and only carry. No reserve ratio either. And any follow-on checks you do via an SPV, with preference to your existing LPs. You’re focused on refining your thesis.

In Fund II, you’re pitching a strategy – the beginnings of pattern recognition of what works and what doesn’t. You’re thesis-driven.

Fund III, as Braughm Ricke says, “you’re selling the returns on Fund I.” On Fund III and up, many fund managers start deviating from their initial thesis – minimally at first. Each subsequent fundraise, which often scales in zeros, is a lagging indicator of your thesis and strategy. And across funds, the thesis becomes more of a guiding principle than the end all, be all of a fund. There are only a few firms out there that continue to exercise extreme fundraising discipline in. Which, to their credit, is often hard to do. ‘Cause if it’s working, your LPs want to put more money into you. And as your fund size scales, so does your strategy.

Subsequently, it becomes a race between the scalability of a fund’s strategy and fund size.

Softbank’s mistake

In 2017, Softbank’s Vision Fund I (SVF I) of $100B was by far the largest in the venture market. In fact, 50 times larger than the largest venture funds at the time. Yet, every time they made a bad bet, the media swarmed on them, calling them out. The reality is that, proportionally speaking, Softbank made as many successful versus unsuccessful bets as the average venture fund out there. To date, SVF I’s portfolio is valued at $146.5 billion, which doesn’t put it in the top quartile, but still performs better than half of the venture funds out there. But bigger numbers warrant more attention. Softbank has since course-corrected, opting to raise a smaller $40B Fund II (which is still massive by venture standards), with smaller checks.

While there are many interpretations of Softbank’s apparent failure with SVF I (while it could be still too early to tell), my take is it was too early for its time. Just like investors ask founders the “why now” question to determine the timing of the market, Softbank missed its “why now” moment.

Bigger funds make sense

I wrote a little over a month ago that we’re in a hype market right now. Startups are getting funded at greater valuations than ever before. Investors seem to have lost pricing discipline. $5 million rounds pre-product honestly scare me. But as Dell Technologies Capital‘s Frank told me, “VCs have been mispricing companies. We anchor ourselves on historical valuations. But these anchors could be wrong.” Most are vastly overvalued, yet future successes are grossly undervalued.

Allocating $152 billion into VC funds, LPs are excited about the market activity and that the timeline on returns are shorter. Namely:

  • Exits via SPAC,
  • Accelerated timelines because of the pandemic (i.e. healthcare, fintech, delivery, cloud computing, etc.)
  • And secondary markets providing liquidity.

We’ve also seen institutional LPs, like pension funds, foundations, and endowments, invest directly into startups.

Direct Investments by Pension Funds Foundations Endowments
Source: FactSet

Moreover, we’re seeing growth and private equity funds investing directly into early-stage startups. To be specific over 50 of them invested in over $1B into private companies in 2021 so far.

As a result of the market motions, the Q2 2021 hit a quarterly record in the number of unicorns minted. According to CB Insights, 136 unicorns just in Q2. And a 491% YoY increase. As Techcrunch’s Alex Wilhelm and Anna Heim puts it, “Global startups raised either as much, or very nearly as much, in the first two quarters of 2021 as they did in all of 2020.”

Hence, we see top-tier venture funds matching the market’s stride, (a) providing opportunity for their LPs to access their deal flow and (b) meeting the startup market’s needs for greater financing rounds. Andreessen recently raised their $400M seed fund. Greylock with their $500M. And most recently, NFX with their $450M pre-seed and seed Fund III.

In his analysis of a16z, writer Dror Poleg shares that “you are guaranteed to lose purchasing power if you keep your money in so-called safe assets, and a handful of extremely successful investments capture most of the available returns. Investors who try to stay safe or even take risks but miss out on the biggest winners end up far behind.” The a16z’s, the Greylocks and the NFXs are betting on that risk.

Fund returners are increasingly harder to come by

As more money is put into the private markets, with startups on higher and higher valuations, unicorns are no longer the sexiest things on the market. A unicorn exit only warrants Greylock with a 2x fund returner. With the best funds all performing at 5x multiples and up, you need a few more unicorn exits. In due course, the 2021 sexiest exits will be decacorns rather than unicorns. Whereas before the standard for a top performing fund was a 2.5%+ unicorn rate, now it’s a 2.5% decacorn rate.

The truth is that in the ever-evolving game of venture capital, there are really only a small handful of companies that really matter. A top-tier investor once told me last year that number was 20. And the goal is an investor is to get in one or some of those 20 companies. ‘Cause those are the fund returners. Take for example, Garry Tan at Initialized Capital, earlier this year. He invested $300K into Coinbase back in 2012. And when they went public, he returned $2B to the fund. That’s 6000x. For a $7M fund, that’s an incredible return! LPs are popping bottles with you. For a half-billion dollar fund, that’s only a 4x. Still good. But as a GP, you’ll need a few more of such wins to make your LPs really happy.

I also know I’m making a lot of assumptions here. Fees and expenses still to be paid back, which lowers overall return. And the fact that for a half-billion dollar seed fund, check sizes are in the millions rather than hundreds of thousands. But I digress.

There is more capital than ever in the markets, but less startups are getting funded. The second quarter of this year has been the biggest for seed stage activity ever, measured by dollars invested. Yet total deal volume went down.

Source: Crunchbase

Each of these startups will take a larger percentage of the public attention pie. Yet, most startups will still churn out of the market in the longer run. Some will break even. And some will make back 2-5x of investor’s money. Subsequently, there will still be the same distribution of fund returners for the funds that make it out of the hype market.

In closing

As funds scale as a lagging indicator of today’s market, the discipline to balance strategy and scale becomes ever the more prescient. We will see bigger flops. “Startup raises XX million dollars closes down.” They might get more attention in the near future from media. Similarly, venture capitalists who empirically took supporting cast roles will be “celebretized” in the same way.

The world is moving faster and faster. As Balaji Srinivasan tweeted yesterday:

But as the market itself scales over time, the wider public will get desensitized to dollars raised at the early stages. And possibly to the flops as well. Softbank’s investment in Zume Pizza and Brandless turned heads yesterday, but probably won’t five years from now. It’s still early to tell whether a16z, Greylock, NFX, among a few others’ decisions will generate significant alphas. I imagine these funds will have similar portfolio distributions as their smaller counterparts. The only difference, due to their magnitudes, is that they’re subject to greater scrutiny under the magnifying glass. And will continue to stay that way in the foreseeable future.

Nevertheless, I’m thrilled to see speed and fund size as a forcing function for innovation in the market. There’s been fairly little innovation at the top of the funnel in the venture market since the 1970s. VCs meet with X number of founders per week, go through several meetings, diligence, then invest. But during the pandemic, we’ve seen the digitization of venture dollars, regulations, and new fund structures:

Quoting a good friend of mine, “It’s a good time to be alive.” We live in a world where the lines between risk and the status quo are blurring. Where signal and noise are as well. The only difference is an investor’s ability to maintain discipline at scale. A form of discipline never before required in venture.

Photo by Ahmed Hasan on Unsplash

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#unfiltered #58 The Shortcomings of Resumes

resume, computer, laptop

The goal of any professional in today’s economy is to never have to submit another resume ever again.

I swear this isn’t an original line, yet I can’t recall the person nor the setting in which I was told. Nevertheless, whether this was a lucid moment or not, it has been firmly etched into my pre-frontal cortex for years.

Building in public and growing under public scrutiny – be it on Twitter or a blog or another form of social media – is one of the best ways to build rapport and credibility. It’s a photograph. An imprint. Still, and in many ways, permanent. A record that you and others can revisit and reasonably objectify your personal growth. Those data points tell a story. Either you connect those dots personally, or often times, someone else connects them for you.

“We are all the unreliable narrators of each other’s stories.”

If you’ve been following my blog over the past few months, that line will carry a familiar scent. My favorite and the first line I heard from the best film I watched this year, In and Of Itself. When my buddy DJ recommended it to me, he told me only two things:

  1. It’s about identity.
  2. And, “we are all the unreliable narrators of each other’s stories.”

It’d be a travesty if I spoiled the plot now. The best way to watch it is, like most unforgettable experiences, going in blind. No summary, no trailer. If my word means anything, it’d be my answer to the question: What is the one movie you’d recommend someone who just time travelled 50 years from the past to catch up with the way people in 2021 think?

But I digress.

Street cred is built up not by what you say about yourself, but by what other people say about you. That street cred will benefit you much more than a sheet of paper that summarizes your entire career into a single pager with 12-point font. I wrote a blogpost recently on how a pitch deck fails to summarize the motivations, the story, the wins and the losses behind building a business. So, you should always be fundraising. Always be selling. Always be pitching. And as you build champions around you, they’ll tell your story – by referring you to investors, share your product on social media, and sell you for you to their friends. Analogously, a resume for a job seeker echoes the same shortcomings a pitch deck has for a founder. Job-seeking sucks. Just like how fundraising sucks.

If only life were simple

Every person has a story. If not multiple stories. We are each a product of more than one storyline. A narrative in hindsight, when we willingly choose to ignore 99% of the other facts.

One of my favorite internet writers, Max Nussenbaum, recently wrote something quite profound. “We tell ourselves stories in order to live, but our lives aren’t actually stories. If they were, they’d be poorly written ones: just a bunch of stuff that happens, with no coherent structure or consistent thematic underlines.”

There’d be far fewer cases of self-doubt and depression, if life was as straightforward as a movie script. But it’s not. And neither should it be. It’s messy. But that’s great. Because we can connect the dots however we want.

There are many ways to tell a story. And the best stories are told by others.

And yes, the goal of any professional in today’s economy is to never have to submit another resume ever again. Frankly, after a certain threshold of rapport, you won’t need to.

Photo by Glenn Carstens-Peters on Unsplash

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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Where Does The Team Slide Go In A Pitch Deck?

soccer, team

There’s a comical number of debates around where the team slide goes in a pitch deck. In fact, this blogpost may end being more of a meme than have any substantive value. Nevertheless, here’s to hoping that by the end of this essay, there’s some semblance of a call-to-action for you. The “too-long-don’t read” answer for the order of your team slide is… it depends.

Why “why you” is important

First, let’s start from the “facts”.

  1. The earlier your company is, the more your team matters to an investor. The more mature your company is, the less it matters.
  2. If your investor doesn’t understand your answer to the “why you” question, you’re not winning any gold medals, much less a check.

I tweeted two days ago:

Investors have, effectively, three questions they want answered in the intro meeting.

  1. Why now?
  2. Why this?
  3. And, why you?

“Why now” tells an investor why they should look into the space. “Why this” tells an investor why they should look at the solution. But if we’re being completely honest, if an investor is a specialist and not a generalist, and even if they were the latter, you’re not the first person who’s brought up the exact same “why now” and “why this”. Even if you answer the first two questions perfectly, there’s still no reason as to why you should be the one to take this product to market. Investors, if they were more blunt, would just thank you for your market research.

On the other hand, if you can answer the “why you” question, you give them a reason to have a second conversation with you. And the whole goal of the intro meeting is to have the second meeting. Not to get the check. Don’t skip steps. As a footnote, your mileage will vary with angel investors and micro funds. For them, speed is their competitive advantage, not their check size nor possibly their network or resources. While they will try to be helpful, they’re not a platform – yet. If you answer the “why you”, in the worst case scenario, your investors won’t regret backing the startup. You just weren’t lucky. But they’d probably be willing to back you again if you started another business.

The reason why so many VCs regress back to metrics and traction is because you’ve failed to answer the “why you” question.

So, where does your team slide go?

Based on the above “facts”, the younger your startup is, the earlier you should put the team slide. To give investors context as to who you are. This matters a bit more for partnership meetings, as well as if this is a (relatively) cold pitch. That is, to say, if you AND your co-founders don’t have a prior relationship with the people you are pitching to, move the team slide to the beginning.

Eniac Ventures, an incredible seed-stage firm, recently wrote, “We believe that it should probably be slide 1 or 2. That’s because investors want to become familiar with the people behind the product early on, whether we’re flipping through the deck or you’re pitching us directly. When the team slide is second, it also gives you a great opportunity to walk investors through your background and impress upon them why your unique set of experiences makes you and your team the best one to build and scale the product.”

In closing

But, that might not be the case for you. The investors you pitch might have a different set of priorities. I always go back to the question: When going into the meeting, if the investor could only ask one question, what is the one question they need the answer for to give them enough of a reason to take the second meeting?

Then your pitch deck should be in that order of priority.

If you’re tackling a problem most people care little about or where it’s non-obvious, talk about the problem first.

If it’s not a revolutionary product and it already makes sense, talk about why you and your team are the best equipped to tackle this problem.

Photo by Pascal Swier on Unsplash

*Edit: Added in second tweet

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#unfiltered #57 True Vulnerability Is Messy

art, vulnerability

One of the greatest blessings I have today is that friends often introduce me to their incredible friends. Two weeks ago, one of my good college friends introduced me to a friend he made down in LA. Sam. A brilliant aspiring fund manager. Cut her teeth with driving impact at non-profits. But above all else, her ability to host dinners with strangers caught my eye and ear. Since I’m a big fan of sharing my learnings from hosting brunches with strangers and social experiments. In a short span of a week, we became fast friends. Expectedly, I had to ask Sam how she brought strangers closer together at her dinners.

Last week we jumped on another call where she walked me through her process. “David, it’s easier to show you than to tell you. Are you open to being vulnerable?”

“Yes.”

“Tell me about your life philosophy.” She asked me what influenced the life purpose I have today. Over the next half an hour, we dove into the depths.

The first third was populated by a politician’s answer. I wasted zero calories jumping into my upbringing and why that has influenced the person I am today. Unwittingly then, but in hindsight clarity now, they were all narratives I’ve rehearsed before – intentionally and unintentionally. After all, they were the cookie cutter responses I’d give to cookie cutter questions most people asked.

Yet, after each of my narratives, there would be a brief pause. What lasted only mere seconds felt like eternity for me. In those moments, she was a woman of few words. Comfortable with silence, she would occasionally beckon, “Tell me more.” On the other hand, I was impatient to fill the void. The emptiness was unsettling. I felt like a circus monkey forced to perform and that the audience’s claps and laughs was the only representation of my self-worth. But that was all in my head.

“Tell me more.”

I filled the next third with stories I’ve told before but not in a while. A reminder to myself that I am more than the person who existed in just the last two years. That I’ve had 23 other years than I somehow left in the attic collecting dust. That I am not a function of my job title or the people I surround myself with currently. But rather the accretion of everything before as well. Where the first third was sharing the mold I now fit in, the second third of our conversation was sharing why seemingly disparate events and relationships in the past fit the mold I had just shared. In sum, I was still making sense of things.

“Tell me more.”

I was ill-equipped to deal with the last third. I was no longer armed with the stories I had rehearsed throughout the 25 years I’ve been alive. Analogously, I was someone who just learned what exponents and derivatives were. When my 5-year old cousin asked the fifth “why”, I didn’t have an answer for her. Not like I did with the first four.

In this case, she asked the third “why”. And I was already at a loss for words. I was lost between doubt and anxiety, between shock and curiosity. But it was in the last ten minutes when I finally dropped my guard. My guard where everything had to make sense. My guard against the fear of uncertainty, not just for the future, but for my past.

A few moments of silence passed. Once again, long, but not nearly as uncomfortable as in the beginning.

At the end of our conversation, she left me to wrestle with my own uncertainty. But with the offer to dive even deeper the next time. And I was left with my own turmoiled mind, unable to find the words outside of sweeping generalizations to express what I felt and how I felt it. While I was grasping for the Merriam-Webster to make sense of my inner entropy, she sent me the below wheel. Something she relies on, to this day, to keep her emotional vocabulary from atrophying. In being able to identify her emotions, she is better set to understand them.

As I’m writing this blogpost, her words “true vulnerability is messy” still ring in my head. And it’s in those moments we build trust and bond with each other. And also with ourselves.

The purpose of this exercise and with vulnerability is not to have more answers than questions. Bur rather more questions than answers. And the ability to ask more.

Emotional Feeling Weel
Source: The Junto Institute for Entrepreneurial Leadership

Cover photo by Alice Dietrich on Unsplash

*Retroactively added Sam’s name into the essay

#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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Why You Should Hire For Expertise, Not Experience

looking forward, sailing

I recently read Fable‘s Padmasree Warrior‘s breakdown of leadership lessons. Prior to Fable, she held executive positions at Motorola, Cisco, and NIO and currently serves on Microsoft and Spotify’s board. Out of all the insights she shared, I couldn’t help but reach out on one intriguing point she brought up: “Hire for expertise, not experience.”

Expertise ≠ Experience

Before reading the blogpost on her, I had never thought of expertise and experience as two separate wheelhouses of knowledge. While there is definitely some overlap, as Holly Liu, founder of Kabam, says:

Expertise and experience are similar, but not the same. It is to no surprise most people often conflate the two, myself included. Experience is a record of past events. Expertise is your ability to leverage experience to positively influence the outcome of future events.

I’m reminded of something Henry Ford once said. “If I had asked people what they wanted, they would have said faster horses.” Experience would have dictated faster horses. Expertise would have dictated why we once chose horses over other modes of transportation. And the framework to think about transportation in the next century.

Hiring for expertise

When I asked Padma, “What kinds of questions do you ask potential hires to measure on expertise rather than experience?”

She responded: “I usually as ‘if X happened what would you do?’ ‘If there is nothing here… how would you start a product?'”

I followed up with a David classic: “If I can be completely selfish one more time, and I understand if you don’t have the time, for the question, ‘if there is nothing here, how would you start a product?’ or similar ones, what differentiates between a good answer and a great answer?”

Padma added: “If someone says ‘I did this at such and such’ – wrong answer. I look for ‘I would start with … then do… then grow’.”

Everyone’s guilty of a bit of revisionist’s history when looking in hindsight. It’s in our DNA. We are the only species that create narratives from seemingly disparate data points. After talking with multiple recruiters, executives, and CEOs on the topic, I realized there is often a tendency for people connect their past achievements together and sound like they knew exactly what they were doing all along. But in foresight, that often isn’t true. There’s a lot of guesswork and uncertainty when looking through the windshield, compared to images that often seem closer in the rearview mirror.

To follow up on Padma’s thoughts, I had to ask my former professor, Janet Brady, the former Head of Marketing and Head of Human Resources for Clorox, about hiring for expertise. “I’m a big fan of situational interviewing, where I ask ‘What would you do if…?’ In the process, I am looking for (a) how would this come up, and (b) how would they approach the problem. It’s easy to make the puzzle pieces fit and make up narratives in the past, but much harder when given a situation to deal with on the spot.”

As with any matter, things are not as binary as they first seem to be. She concedes that there is validity in asking about experience as well. But the context around experience is often more insightful than the experience itself. Brady shared, “You never do something alone. If you see a turtle on top of a fence post, you don’t know how it got there, but you know it had help.” How many people were on your team? What was your role on the team? What problems did you run into? And how did you deal with those problems?

But one of her interview questions in particular stood above the crowd for me. “What did you do in this role that no one else in this role has done?” While past achievements aren’t always predictors of future progress, in this case, what you’re looking for aren’t anecdotes but general themes in life, specifically, the ability to question the status quo and act on it.

Echoing Brady’s questions on problems a hire has faced, what might be more interesting is what didn’t work out in the past. The scar tissue someone’s accumulated over the years. Marco Zappacosta of Thumbtack loves the question: “What’s your biggest professional regret?”. And he elaborates, “I’m under no illusions that I’m hiring perfect people, but I want to make sure I’m hiring people who are self-aware of being imperfect.”

Put into practice

SaaStr’s Jason Lemkin shared a great example in his blogpost. How the expertise of VPs of Marketing differ depending on what stage of a company’s maturity they earned their stripes. A corporate marketer’s experience might translate poorly to running marketing at a startup. Equally so, a seed-stage startup marketer’s job might carry much less significance in a Fortune 500 role.

Corporates focus on corporate marketing and brand marketing. A form of marketing that’s “all about protecting and reinforcing the brand once you are way past scale.” It’s less about getting your brand recognized since customers have already heard of your brand. It’s about getting potential customers over the activation energy required before making a buying decision. As Jason puts it, “the brand creates so many leads and customers all on its own.”

Startups, on the other hand, are all about demand generation. In other words, generating leads. It’s a numbers game. Spend X dollars to get Y leads, that generate five times of $X of revenue. The equivalent of an LTV-to-CAC ratio of 5x. At the same time, he notes that “brand marketing is very expensive in the early days – and frustratingly, generates zero leads.”

Someone with Z years of marketing experience might have a lot of scar tissue, but might not be able to solve the marketing problem for your startup. Demand gen folks can’t hide anywhere if they don’t get results, but corporate marketing folks can hide behind a brand. Focus on finding the expertise you need rather than the years of experience that might look sexy on a resume or on a pitch deck. As always they’re not mutually exclusive, but it’s important to know the difference.

Who knows? Maybe the next generation of lead gen is all about Twitter presence and memes, as a16z’s Andrew Chen recently tweeted.

Taking a step back

On a bigger picture, the process of sales and marketing is a form of free education for a customer base. The better you can get your users to understand what you’re building, the more likely they will buy. Memes are just another medium of analogy and education. Better yet, of storytelling.

The better you can weave together seemingly disparate data points to create a compelling narrative without confounding extraneous variables, the greater your level of expertise. As Packy McCormick, one of my favorite writers, wrote on an a16z blogpost on expertise, “We live in a world where expertise can be justly claimed by anyone who can continue to prove it. Synthesis and storytelling are the keys to navigating that world. In a world with so much information available and fewer unquestioned experts, the ability to let large amounts of information wash over you, figure out where to dive deep, pull out the most compelling bits, and tie them all together is key.”

In closing

Hiring great talent across all levels breaks down to less of how many years of experience, but more so how you can leverage those experiences to understand and use unique and seemingly disparate data points going forward. Fall forward; don’t fall backward. An expert hire might not have all the answers to your problems, but will have built stress-tested mental models that’ll help in finding the answers for the questions you have.

Back when I was at SkyDeck, Caroline taught me that great entrepreneurs follow the “scientific method of entrepreneurship.” If I were to analogize her idea to expertise, an expert is a champion of the “scientific method of application.”

Of all the experts I’ve met – a title which is often one that society has deemed rather than being self-prescribed – they’ve almost always had an answer or multiple to a certain question. What proof would it take for you to change your mind?

Photo by Markos Mant on Unsplash

Thank you Janet for looking over early drafts.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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How to Pitch VCs Without Ever Having to Send the Pitch Deck

pitching, emotion

Not too long ago, in the sunbathed streets outside of Maison Alysée, I was chatting with an incredible serial entrepreneur backed by some of the greatest names in the venture world, who also happened to have spent some time at my favorite VR startup. All in all, he knew what he was talking about. But to respect his privacy, I’ll call him James. And James said something that was quite the head-turner.

“I never got a check for sending the pitch deck before the meeting.”

And so began my deep dive into the contrarian thinking that led to the above statement.

Why the pitch deck might not work

As an armchair expert on films I like, my favorite films have never fit my rubric of the perfect story. Rather, my rubric of the perfect story was shaped by my favorite films.

A pitch deck, like any other rubric, is a pre-ordained set of words and pictures that follow “industry’s best practices”. The problem, solution/product, why now, market size, team, traction, competitors, business model, and financial projections. Most pitch decks don’t deviate too far from the afore-mentioned order. Nevertheless, at the end of the day, rubrics are lagging indicators of what worked. They rarely serve as predictors of what will work, yet we prescribe a disproportionately high amount of trust to their predictive qualities.

“Fundraising is hard”

“You can do everything right – you go through all the steps, do the CRM, get the emails, get the introductions, give the pitches – you do it textbook, and you won’t get a dollar. Fundraising is hard.”

Naturally, I had to ask James what he did to secure funding without sending the pitch deck. James shared, “I never really think about ‘fundraising’, like I mentioned when we chatted I do try to keep track of things but that’s more so that I don’t over-email folks. I never write one email and then send it to a lot of people. Every email I write, I write personally.”

Pitch with emotion

“How do you close somebody? It’s not with spreadsheets and numbers. It’s with emotion. A good pitch gets people over the activation energy [necessary] of actually investing in your business. There are plenty of companies who are making $10 million a month and didn’t raise a dollar. There are plenty of companies who didn’t make a dollar ever and raise a $100 million bucks.”

James’ comment reminded me of a LinkedIn post from Chewy‘s VP of Merchandising, Andreas von der Heydt, recently.

Source: Andreas von der Heydt‘s LinkedIn post

Every pitch is a story. And often times, the best narrative you can tell isn’t in a 10-megabyte presentation filled with numbers and letters or a Docsend link, based on a rubric that your audience decided. There’s rising and falling action. There’s also you, the underdog, who embarks on a hero’s journey to change the world. What does the world look like today? What will it look like without you tomorrow? Against seemingly impossible odds and guided by the fortune of luck (timing, why now?) and grit, why is the future you envision, with you in it, inevitable?

Sandbox VR‘s Siqi Chen has an amazing presentation on how to pitch appealing to emotion.

You can also see it in action in their pitch that got a16z to lead their $68M Series A.

“Always bring the value”

“People are busy, especially the people you’re pitching. Teach them something. They wanna learn. They wanna walk out of that meeting and remember you and make their life a little bit better. And one way to do this is to bring value that they didn’t have before.

“This is also a self-selector. If you don’t do this, they’re not going to call you back. You want to be interesting. You want the other person to walk away thinking that was fun.

“Unfortunately, this is what a lot of founders don’t do. They treat these meetings like work. ‘We’re going to walk in with a strategy. We’re going to stick to the script.’ The other people on the other side never ask any questions. They say ‘see ya later’ and you never hear from them ever again.”

In many ways, this is what many investors call the ‘secret sauce‘. Do you know something that the other person doesn’t? Can you connect the dots in a way that the other person has never thought about? Have you inspired the other person where after the meeting and the ‘A-ha!’ moment they do something about it?

For people who are obsessed and really passionate, their passion is often contagious. One doesn’t have to be an investor or a subject-matter expert to know and feel that. And when inspired, the other person acts as an extension of the energy you brought to the conversation. It could be in the form of work, writing, invites, or intros. These second-order effects might not always come immediately. But rather eventually. This is what James calls “manufacturing serendipity”.

On asking for intros

I asked James, “Did you ever ask for the intros or did they come quite organically?”

And what he shared truly set him apart from 99% of founders I’ve met with. “People always say ‘how can I help?’ Some don’t mean it. And this works for them too because quickly, you figure who’s who. But always have an answer. Not like ‘intro me to some people.’ But ‘hey, I saw you know so and so, and I’d love to chat with them – would you mind introducing me?’ Having one to two things is the sweet spot.

“Do all of the leg work. Help them help you as much as possible. Everyone wants to be the hero that helps someone else, but people have lives – and if you’re the one that is getting the value, bring the value as much as possible.” Provide the person making the introduction with all the context and reasons for the other person to say yes.

It echoes much of my personal template I tell folks if they want an intro to an investor that consists of three parts – no more, no less:

  1. The one metric they’re nailing (ideally so much better than the rest of the industry
  2. Short 1-2 lines on what you’re building and why
  3. What makes that one investor the best dollar on your cap table – why it has to be her or him, and no one else

The metric gives the investor a reason to click open the email. The blurb shares the context. And the last, and, in my opinion, the most important part gives the investor the reason – the story – they need to be a hero. You might notice how much a founder is raising isn’t “required material”. Capital is secondary to the story you pitch. While based on some hard facts, startup investing is often an emotional decision. As James said, “Money doesn’t build products; people do.”

In closing

There’s a lesson I took from my time at SkyDeck, and have continued to preach ever since. “Always be fundraising.” And I don’t mean ask for money in every waking moment. In fact, you shouldn’t. Not only are you at risk in sounding like a broken record, you will end up sacrificing time you could be spending on building your product. But always be pitching. Always be getting other people excited about what you’re working on and why that’s so important. Not why should the world be excited about your product, but why that person in particular should be.

Build relationships. Build a fanbase before you need to fundraise. Add value in every conversation. And the ripple effects would come back tenfold. James went on to say, “I would meet with anyone, [and] still do. If they liked what I was doing, they’d intro me either to an investor that might be into it or another company that had an investor that might be into it.”

James truly has a magnetic energy. Every time we chat I learn something indispensable. After all, one of our conversations inspired this blogpost, which I imagine is the first of many more to come. So, it came as no surprise as he’s getting interest left and right on his new venture.

*Some quotes were edited for clarity and my lack of a photographic memory. Sorry.

Photo by Tengyart on Unsplash

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DGQ 5: What startups would I love to have in my anti-portfolio?

ice cream, mistake, anti portfolio

In the venture world, there’s this concept of the anti-portfolio. A portfolio for incredible startups you had the chance to invest in, but chose to pass on. Usually the startups that qualify to be in this anti-portfolio have already reached mainstream – either having gone public and/or have reached unicorn status. For anti-portfolio references, I highly recommend checking out Bessemer‘s or tuning into Samir Kaji’s Venture Unlocked podcast, where he asks each guest about their anti-portfolio.

But having chatted with a number of incredible investors, what’s more important than names on an excel sheet is the lesson or lessons we take away from passing on the greats. Those lessons are the very answer to one of the most insightful questions an LP (limited partner) can ask. “How does your anti-portfolio advise your current investment thesis?”

In a similar way, life is a mixed bag of engineered serendipity and endured scar tissue. Our past mistakes inform our future decisions. You learn how to handle kitchen cutlery after cutting yourself a few times. You learn to walk after stumbling. And you learn to communicate after making a fool of yourself. We are a product of the scar tissue we’ve accumulated.

I’m in my first inning in the venture world, and admittedly, way too early to have any true hall-of-famers in my anti-portfolio. So rather than looking into the past from the present, I thought I’d look into the “past” from the future. A “past” that has yet to come, but will be defining of my future. Something Mike Maples Jr calls backcasting. Starting from the future and making my way back to today, along the way, figuring out what I need to do to get to that future. If you’ve been following this blog for a while, you know I’m a big fan of his mental model. “The future doesn’t happen to us; it happens because of us. […] Breakthrough builders are visitors from the future, telling us what’s coming.”

Rather than what startups are in my anti-portfolio, what startups would I love to have in my anti-portfolio?

On a similar note, for non-investors: Ten years from now, what are mistakes you’d want to have made that you tell yourself that it was a decade well-spent?

Photo by Sarah Kilian on Unsplash

The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.

Subscribe to more of my shenaniganery. Warning: Not all of it will be worth the subscription. But hey, it’s free. But even if you don’t, you can always come back at your own pace.

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DGQ 4: How much would I sacrifice to obtain this opportunity if I no longer had it?

hands, sacrifice

I was chatting with an engineer exploring new opportunities yesterday. He was at an inflection point in his career and had two incredible paths before him. One, join a product or venture studio and get his hands dirty building different products simultaneously. Two, find a co-founder and start his own company. Both had immense appeal to him. And he was unsure what path he should take, in fear he might like the other path more once he committed.

The feeling of regret is often inevitable. Especially when you have the incredible options before you, but without the luxury of time. We often ask ourselves, “How much do I value each opportunity?” Most of the time we do a quick mental calculation. We look at the biggest value of each opportunity and their future potentials. For those who prefer a more nuanced approach, we create two (or more) long lists of the pros and cons of each. Both approaches are extremely rational.

Yet, there’s still something missing. Either something that gnaws at our conscious telling us, maybe there’s something we haven’t considered. Or realizing that in constructing these lists we’ve made the decision way more complicated than it needed to be.

Rather the question I find that offers more clarity is, “How much would I sacrifice to obtain this opportunity if I no longer had it?“

Humans are naturally loss-averse. We react more strongly to losses than we do to gains. For instance, we feel the pain of losing our wallet with $100 in it, than we feel the ephemeral joy of winning $100 in the lottery.

At the same time, we tend to take most things for granted until they are taken away. There are a million and one examples. We often don’t appreciate our significant other until they leave us. We take our parents for granted until they are no longer with us. The same is true for friends, homes, personal belongings, and memories.

I also prefer the nomenclature of “I” over “you”. Unlike rational decisions, where it is most insightful to abstract oneself from the situation, irrational decisions require a true introspection of oneself. After all, regrets aren’t usually rational.

While I can’t speak for everyone, my best decisions have often been a permutation of rationality and emotions. When the nuance of each decision leads to an incalculable algorithm and frankly, decision paralysis, I find it useful to channel emotional loss as a tool to make tough choices in life. Pursuing new opportunities, at least for me, is no exception.

Photo by Stormseeker on Unsplash

The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.

Subscribe to more of my shenaniganery. Warning: Not all of it will be worth the subscription. But hey, it’s free. But even if you don’t, you can always come back at your own pace.

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The Hype Rorschach Test: How To Interpret Startup Hype When Everything’s Hyped

abstract, rorschach, hype, color

Not too long ago, I quoted Phil Libin, founder of All Turtles and mmhmm (which has been my favorite virtual camera in and most likely post-pandemic), who said: “I think the most important job of a CEO is to isolate the rest of the company from fluctuations of the hype cycle because the hype cycle will destroy a company. It’ll shake it apart. In tech the hype cycles tend to be pretty intense.”

Hype is the difference in expectation and reality. Or more specifically, the disproportionate surplus of expectation. A month ago, Sarah Tavel at Benchmark wrote: “Hype — the moment, either organic or manufactured, when the perception of a startup’s significance expands ahead of the startup’s lived reality — is an inevitability. And yet, it’s hard not to view hype with a mix of both awe and fear. Hype applied at the right moment can make a startup, while the wrong moment can doom it.”

Right now, we are in a hype market. And hype has taken the venture market by storm.

We’ve all been seeing this massive and increasing velocity and magnitude of capital deployment over the last few months. Startups are getting valued more and more. In the past, the pre-money valuations I was seeing ranged from 2-on-8 to 3-on-9. Or in not so esoteric VC jargon, $2M rounds on $8M pre-money valuations ($10M post-money) to $3M rounds on $9M pre-money valuations ($12M post-money). These days, I’ve been seeing 5-on-20 or 6-on-30. Some of which are still pre-traction, or even pre-product.

Founders love it. They’re getting capital on a discount. They’re getting greater sums of money for the same dilution. Investors who invested early love it. Their paper returns are going through the roof. When looking at IRR or TVPI (total value to paid-in capital – net measurement on realized and unrealized value), higher valuations in their portfolio companies are giving investors jet fuel to raise future funds. And greater exit values on acquisition or IPO mean great paydays for early investors. Elizabeth Yin of Hustle Fund says “this incentivizes investors to throw cash at hyped up companies, instead of less buzzy startups that may be better run.”

Sarah further elaborated, “In the reality distortion field of hype, consumers lean in and invest in a platform with their time and engagement ahead of when they otherwise might have. They pursue status-seeking-work, not because they necessarily get the reward for it relative to other uses of their time, but because they expect to be rewarded for it in the future, either because of the typical rich-get-richer effect of networks, or just in the status of being an early adopter in something that ends up being big.” The same is true for investors investing in hyped startups. It’s status-seeking work.

Frankly, if you’re a founder, this is a good time to be fundraising.

Why?

  1. Capital is increasingly digital.
  2. There is more than one vehicle of early stage capital.
  3. There are only two types of capital: Tactical capital and distribution capital.

1. Capital is increasingly digital.

Of the many things COVID did, the pandemic accelerated the timeline of the venture market. Pre-pandemic, when founders started fundraising, they’d book a week-long trip to the Bay Area to talk to investors sitting on Sand Hill Road. Most meetings that week would be intro meetings and coffee chats with a diverse cast of investors. Founders would then fly back to their home base and wait to hear back. And if they did, they would fly in once again. This process would inevitably repeat over and over, as the funnel grew tighter and tighter. And hopefully, at the end of a six-to-twelve month fundraise, they’d have one, maybe a few term sheets to choose from.

Over the past 18 months, every single investor took founder meetings over Zoom. And it caused many investors to realize that they can get deals done without ever having to meet founders in-person. Of course, the pandemic forced an overcorrection in investor habits. And now that we’re coming out of isolation, the future looks like: every intro meeting will now be over Zoom, but as founders get into the DD (due diligence) phases or in-depth conversations, then they’ll fly out to meet who they will marry.

  1. It saves founders so much time, so they can focus on actually building and delivering their product to their customers. And,
  2. VCs can meet many more founders than they previously thought possible.

This has enabled investors to invest across multiple geographies and build communities that breathe outside of their central hub or THE central hub – formerly the SF Bay Area. Rather, we’re seeing the growth of startup communities around the nation and around the world.

2. There is more than one vehicle for early stage capital.

While meetings have gone virtual, the past year has led to a proliferation of financing options in the market as well. Capital as jet fuel for your company is everywhere. Founders now have unprecedented optionality to fundraise on their terms. And that’s great!

Solo capitalists

Individual GPs who raise larger funds than angels and super angels, so that they can lead and price rounds. The best part is they make faster decisions that funds with multiple partners, which may require partner buy-in for investments.

Rolling funds

With their 506c general solicitation designation, emerging fund managers raise venture funds faster than ever and can start deploying capital sooner than traditional 506b funds.

Micro- and nano-VCs

Smaller venture funds with sub-ten million in fund size deploying strategic checks and often leverage deep GP expertise. No ownership targets, and can fill rounds fast after getting a lead investor.

Equity crowdfunding

Platforms, like Republic and SeedInvest, provide community-fueled capital to startups. Let your biggest fans and customers invest in the platform they want to see more of in the future. With recent regulations, you can also raise up to $5 million via non-accredited and accredited investors on these platforms.

Accelerators/incubators

Short three-month long programs, like Y Combinator, 500 Startups, and Techstars, that write small, fast checks (~$100K) to help you reach milestones. Little diligence and one to two interviews after the application. Often paired with an amazing investor and/or advisor network, workshops, powerful communities, and some, even opportunity funds to invest in your next round.

Syndicates/SPVs

Created for the purpose of making one investment into a company a syndicate lead loves, syndicates are another ad hoc way of raising capital from accredited investor fans, leveraging the brand of syndicate leads and deploying through SPVs. Or special purpose vehicles. I know… people in venture are really creative with their naming conventions. In turn, this increases discoverability and market awareness for your product.

SPACs and privates are going public again

Companies going public mean early employees have turned into overnight millionaires. In other words, accredited investors who are looking to grow their net worth further by investing in different asset classes. Because of the hype, investing in venture-scale businesses tend to be extremely lucrative. These investors also happen to have deep vertical expertise, high-value networks, as well as hiring networks to help startups grow faster. More investors, more early stage capital.

Growth and private equity are going upstream

Big players who usually sat downstream are moving earlier and earlier, raising or investing in venture funds and acceleration programs to capture venture returns. And as a function of such, LPs have increased percent distributions into the venture asset classes, just under different names.

Pipe

Pipe‘s existed before the pandemic, but founders have turned their eye towards different financing options, like Pipe. They turn your recurring revenue into upfront capital. Say a customer has an annual contract locked in with you, but is billed monthly. With Pipe, you can get all that promised revenue now to finance your startup’s growth, instead of having only bits and pieces of cash as your customers pay you monthly. Non-dilutive capital and low risk.

3. There are only two types of capital: Tactical capital and distribution capital.

There’s an increasingly barbell distribution in the market. Scott Kupor once told Mark Suster that: “The industry’s gonna bifurcate. You’re going to end up with the mega VCs. Let’s call them the Goldman Sachs of venture capital. Or the Blackrock of venture capital. And on the other end, you’re going to end up with niche. Little, small people who own some neighborhood whether it’s video, or payments, or physical security, cybersecurity, physical products, whatever. And people in the middle are going to get caught.”

Those “little, small” players have deep product and go-to-market expertise and networks. Their checks may be small. But for an early stage company still trying to figure out product-market fit, the resources, advice, and connections are invaluable to a startup’s growth. They’re often in the weeds with you. They check your blind side. And they genuinely empathize with the problems and frustrations you experience, having gone through them not too long ago themselves. Admittedly, many happen to be former or active operators and/or entrepreneurs.

On the flip side, you have the a16z’s and Sequoias on their 15th or 20th fund. Tried and true. Brilliant track record with funds consistently north of 25% IRR. Internal rate of return, or how fast their cash is appreciating annually. LPs love them because they know these funds are going to make them money. And as any investor knows, double down on your winners. More money for the same multiples means bigger returns.

The same is true for historical players, like Tiger, Coatue, and Insight, who wire you cash to scale. They assume far less risk. Which admittedly means a smaller multiple. And to compensate for a lower multiple, they invest large injections of capital. By the time you hit scale, you already know what strategies work. All you need is just more money in your winning strategies.

You find product-market fit with tactical capital. You find scale with distribution capital.

Product-market fit is the process of finding hype. When you stop pushing and start finding the pull in the market. Scale is the process of manufacturing hype.

The bear case

But there are downsides to hype. Last month, Nikhil, founding partner at Footwork, put it better than I ever could.

Source: Nikhil Basu Trivedi on next big thing

If I could add an 8th point to Nikhil’s analysis, it’d be that investors in today’s market are incentivized to “pump and dump” their investments. Early stage investors spike up the valuations, which leads to downstream investors like Tiger Global, Coatue, Insight, and Softbank doubling down on valuation bets. Once there’s a secondary market for private shares, early stage investors then liquidate their equity to growth investors who are seeking ownership targets, or just to get a slice of the pie. This creates an ecosystem of misaligned incentives, where early stage investors are no longer in it for the long run with founders. Great fund strategy that’ll make LPs happy campers, but it leaves founders with uncommitted, temporary partners.

Sundeep Peechu of Felicis Ventures has an amazing thread on how getting the right founder-investor fit right is a huge value add. And getting founder-investor fit takes time, and sometimes a trial by fire as well. After all, it’s a long-term marriage, rather than a one-night stand. Those who don’t spend enough time “dating” before “marriage” may find a rocky road ahead when things go south.

On a 9th point, underrepresented and underestimated founders are often swept under the rug. In a hype market, VCs are forced to make faster decisions, partly due to FOMO. With faster decisions, investors do less diligence before investing. Which to the earlier point of misaligned incentives, has amplified the already-existing notion of buyer’s remorse.

When VCs go back to habits of pattern recognition, they optimize for founder/startup traits they are already familiar with. And often times, their investment track record don’t include underrepresented populations. To play devil’s advocate, the good news is that there is also a simultaneous, but comparatively slow proliferation of diverse fund managers, who are more likely to take a deeper look at the problems that underestimated founders are tackling.

What kind of curve are we on?

When many others seem to think that this hype market will end soon, last week, I heard a very interesting take on the current venture market in a chat with Frank Wang, investor at Dell Technologies Capital. “VCs have been mispricing companies. We anchor ourselves on historical valuations. But these anchors could be wrong.

“We’re at the beginning of the hype and I don’t see it slowing down. VC has been so stagnant, and there hasn’t been any innovation in venture in a long time. Growth hasn’t slowed. And Tiger [Global] and Insight [Partners] is doing venture right. Hypothetically speaking, if you invest in everything, the IRR should be zero. They are returning 20% IRR because they seem to have found that VC rounds are mispriced. So, there can be an arbitrage.

“There will be a 20% market correction in the future, but we don’t know if that’s going to happen after 100% growth, or correct then grow again. The current hype is just another set of growing pains.”

Part of me is scared for the market correction. When many founders will be forced to raise flat or down rounds. The fact is we haven’t had a serious market correction since 2009. It’s going to happen. It’s not a question of “if” but rather “when” and “how much”, as Frank acutely points out.

Investors who deploy capital fast win on growing markets – on bull markets. Or investors who deploy across several years, or what the afore-mentioned Mark Suster defines as having “time diversity“, who win on correcting markets – bear markets. Think of the former as putting all your eggs in one basket. And if it’s the winning basket, you’re seen as an oracle. If not, well, you disappear into obscurity. Think of the latter as diversifying your risk appetite – a hedging strategy. More specifically, (1) being able to dollar-cost average, and (2) having exposure to multiple emerging trends and platforms. You’re not gonna lose massive amounts of capital even in a bear market, but you also will be losing out on the outsized returns on a bull market.

Only time will tell how seriously the market will correct and when. As well as who the “oracles” are.

In closing

At the end of the day, there are really smart capital allocators arguing for both sides of the hype market. Like with all progress, the windshield is often cloudier and more muddled than the rearview mirror. As Tim Urban once wrote, “You have to remember something about what it’s like to stand on a time graph: you can’t see what’s to your right.“

Edge
Source: Tim Urban’s “The AI Revolution: The Road to Superintelligence“

And as founders are going to some great term sheets from amazing investors, I love the way Ashmeet Sidana of Engineering Capital frames it earlier this year. “A company’s success makes a VC’s reputation; a VC’s success does not make a company’s reputation. In other words to take a concrete example, Google is a great company. Google is not a great company because Sequoia invested in them. Sequoia is a great venture firm because they invested in Google.”

Whether you, the founder, can live up to the hype or not depends on your ability to find distribution before your competitors do and before your incumbents find innovation. Unfortunately, great investors might help you get there with capital, but having them on your cap table doesn’t guarantee success.

Nevertheless, the interpretation of hype is always an interesting one. There will continue to be debates if a market, product, or trend is overhyped or underhyped. The former assumes that we are on track for a near-term logarithmic curve. The latter assumes an immediate future looking like an exponential curve. The interpretation is, in many ways, a Rorschach test of our perception of the future.

Over the course of human civilization, rather than an absolutely smooth distribution, we live something closer to what Tim Urban describes as:

S-Curves
Source: Tim Urban’s “The AI Revolution: The Road to Superintelligence“

If the regression line is the mean, then we’d see the ebbs and flows of hype looking something like a sinusoidal function. As Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.”

It won’t be a smooth ride. The world never is. But that’s what makes the now worth living through.

Photo by Jené Stephaniuk on Unsplash

Thank you Frank for looking over earlier drafts.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

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DGQ 3: The Alter Ego of “How are you?”

For a while, I’ve been testing a new opening line to a conversation that isn’t “How are you doing” or “How have you been”. Over the years, I realized the “How are you?” family of questions have zero substantive value. Repeat guest answers include “fine”, “okay”, and “good”. This family of questions are often placeholder for “I don’t know how to start the conversation.” And hold as much value as “like” or “umm”.

I will admit that sometimes people do mean it when they ask “How are you?”. Yet, oddly enough, in those moments, the question becomes twice as powerful when asked again in quick succession. “How are you really?”

Don’t get me wrong. Often times, my knee jerk reaction is still “How are you?” for more instances than I’m willing to admit. But I’m working on changing it. After all, I’ve already seen the amazing results of its alter ego.

This is admittedly less of a DGQ (damn good question) and more of a DGT (damn good tactic). Instead of asking a question, make a speculation as the icebreaker. The more detailed the speculation, the more engaged the response. In practice, adding a flare of exaggeration often helps lighten the mood, but too much and it might reflect poorly on your first impression. Metaphors and similes often help a lot.

Here’s are a couple examples that I’ve used in the past:

Instead of…Try…
What did you do over the weekend? If they look worn out, “You look like you fought tooth and claw with your two children over the weekend. Who won?”
If not, “You’re smiling from ear to ear. You look like you just cleaned the table at poker night.”
What do you do for a living?“I’m going to take a wild guess here. You’re an award-winning freelance designer who moonlights as a webtoon artist that just sold 50,000 copies.”
“Don’t tell me what you do. Let me take a stab and tell me if I’m right or right. You’re a recovering investment banker and found that you had a talent for music development
How are you doing?“You look like you’ve shaved 10 years off with that new keto diet.”
“That new dance class is really working out for you, isn’t it?”

Always default on positivity rather than negativity. And if your brain still goes to the negative, try adding in some lightheartedness. If you know the person already, do a bit of light research on their socials to give some credit to your speculation. If you don’t, observe their habits and apparel as a starting point. Comment on what you think they’re really proud of (i.e. physique, fashion).

People love to be heard, and letting people know that they will be heard before they even speak provides them the safety net to engage in thoughtful conversation with you.

There is a caveat. It works far less effectively when you’re in a short call and the other person is focusing on making a transaction than considering the potential of a long-term relationship. That’s not your fault. Some people are just like that, and it’d be a waste of your time to try to convince them otherwise.

As with all great ideas and tactics, this too is not original. Every time someone makes me really feel at home or when a friend tells me someone makes them feel like the most important person in the world in that moment when they converse, I observed their behavior. And many of those individuals, some who ended up being good friends of mine, used the above tactic in one way or another.

Photo by Jeremy Zero on Unsplash

The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.

Subscribe to more of my shenaniganery. Warning: Not all of it will be worth the subscription. But hey, it’s free. But even if you don’t, you can always come back at your own pace.

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